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Annuities Provide Income Certainty


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Retirement planning has changed a lot over the last few decades.  Pension plans became very costly for businesses. So, the private sector has largely transitioned to 401(k) plans for its workers instead — which has resulted in plenty of new challenges, including the need for Americans to take charge of their investments as well as the rate of their retirement savings.

The power of compound returns is a basic tenet of investing, but it’s still shocking to see how it works especially with the extremely low interest rates offered at this time. The problem with the current interest rates is that it’s unfair that people who’ve saved every penny, paid off mortgages, and everything they were supposed to do and they were going to retire with their beautiful nest egg and now they’re getting one-eighth of 1%.

What makes resistance to the stock market is that seniors who bought at a certain level – only to see the market fall from there.  Investors need to consider the sequence of returns in retirement, because if their portfolio is all invested in equities and they take money out of their portfolio while the market is down that can rapidly accelerate the depletion of their assets.

Standard retirement investing advice has you invest heavily in stocks early in your career and then slowly adopt a more conservative strategy going forward. One simple rule involves taking your age and subtracting it from 100, and that gives you the percentage of your portfolio you should invest in stocks.

Longevity risk is a growing concern for today’s workers and retirees…many Americans are facing the likelihood of outliving their resources. Increased longevity has had a profound impact on how one must plan for retirement.  Nevertheless, many are not financially prepared for these extra years of life.

One of the big reasons retirees may end up spending more than they thought they would is because of how much they unexpectedly have to spend on health care — that’s up nearly 30% over the past decade — on health care throughout retirement, even though they have Medicare health coverage.

For those who don’t have the backstop of a traditional defined-benefit pension plan, however, annuities could be an attractive way to re-create the kind of guaranteed retirement income most Americans enjoyed in decades past.  Annuities make it so you can still have a pension.  The basic feature of an annuity that makes it attractive to savers is the promise of a guaranteed income stream for the rest of their lives.

That kind of certainty is hard to replicate with other investments, which can fluctuate in value or income potential over time.  In its purest form, an annuity is taking a portion of my assets and turning it into a lifetime income stream   That’s an incredibly appealing idea to people who don’t have the guarantee of a pension plan.

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Thursday, April 21st, 2016 Wealth Management Comments Off on Annuities Provide Income Certainty

A Great Standby for Retirees!

Being fully funded for retirement means that you can safely lock-in your retirement spending goals without taking market risk.  The worst-case scenario is that later in retirement the retiree ends up being forced to make substantial cuts to their spending, which could make their final years quite worrisome and difficult.

Seniors need an increase in interest rates to restore your savings accounts to relevance.  Income inequality is “the defining challenge of our time and a zero interest rate for seniors contributes to inequality.

Seniors on fixed incomes have to get returns somehow, and junk bonds and riskier stocks have been the answer for many.  But the idea of a system in which the returns to frugal saving are zero with certainty, while the returns to investing money in risky high-yield stocks and bonds — a form of gambling — often pays off, is troubling, to say the least.

Seniors in particular, will be better when the Fed abandons its low-interest-rate policy, despite some initial turbulence.  Low interest rates and high stock market valuations both suggest that we should expect lower investment returns in the future.  Over the past 13 months, the S&P 500 has seen two corrections of more than 10% and is down about 3%.

The trouble is we’ve lived through an amazing bull market in all … asset classes.  Investors are betting that bull market is going to continue indefinitely.  That violates a fundamental principle of finance.  You can’t assume that you did well taking risky investments in the past [and] that you’re going to get the same returns taking risky investments in the future.

Millions of Americans who saved diligently over the years have been crying out for relief. Many have found themselves struggling, thanks to rates that have remained near 0% for years.  If you are living off the interest your assets generate, a low-interest rate environment obviously means less income to live on yet the cost of everything we purchase is going up, requiring more income to meet expenses.

Any time you go to the store, eat at a restaurant or fill up at the gas station, there’s a chance you’ll end up paying more for the same products than you would have paid the day before.  We’re all living longer. And most of this longevity can be attributed to leading more active, healthy, and smoke-free lifestyles, as well as advances in medical treatments. But just because we are living longer doesn’t mean we’re going to remain healthy throughout our entire lifetime.

Few consumers need to be reminded that costs on everyday items are rising: They see it at the checkout. Health care expenses in retirement can be significant.  The reality is that medical expenses may be a very real (and substantial) cost for retirees, especially with us all living longer.  But whether it’s medical care, prescription drugs or food, senior citizens’ wallets are being hit particularly hard, and at a time when Social Security isn’t rising. Recipients got no raise for this year.

Annuities are a great standby for retirees – Annuities can provide peace of mind. Annuities are a type of insurance product that guarantee regular payments (at a either fixed or variable rate) for a designated period or until your death, even if you turn out to be a centenarian and laddering can be done with annuities,.

Fixed annuities do deliver the guaranteed lifetime income as an option you can exercise plus you retain the flexibility and predictability that is needed for the longest and most expensive journey you’ll ever take: retirement.  Check out fixed annuities and see if they’re suitable for your retirement needs.

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Tuesday, April 12th, 2016 Wealth Management Comments Off on A Great Standby for Retirees!

Safe Money Retirement Alternative

Retirement is a long journey that you should plan to last three decades. During the journey you’ll be using the money you have previously saved, earnings from your investments, government or private pension, Social Security and maybe earned income, inheritance or gifts.  The greatest fear of most retirees is running out of money before they run out of retirement.

Retirees that historically looked to banks for “earned interest to supplement Social Security”. However, the zero interest-rate policy has broken the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough.

Downward mobility is the antithesis of the American Dream. It’s an especially bleak trend for soon-to-be retirees, who do not have the ability to recover losses, change careers or do the kind of financial damage control available to younger workers.  It’s easy to see why the greatest fear of retirement is “running out of money”.  So why do so many retirees and those in retirement’s red zone keep their money in risky places?

Contrary to what you read and hear from Wall Street and other financial pundits, when it comes to predicting the future direction of markets remember that no one knows because there are simply too many imponderables.  The market goes up and down with economic and financial cycles and so does the value of the investments in the market.

The “investments” bought and sold take many shapes and sizes from shares of individual stocks, mutual funds, options and more with each offering a dazzling array of choices.  Those who sell stocks to the general public make a commission each time a stock is bought or sold; therefore, it is in their best interest that people participate in the market.

With 2015 ending flat and 2016 off to a rocky start, some worry that retirees taking on too much risk could be in trouble if the bull market gains are over.  The current economic backdrop is: the lowest interest rates in a generation, volatile and uncertain markets for equities & bonds, political gridlock preventing economic solutions, an unstable banking industry.

There’s no doubt that the early part of 2016 has caused investors to pause and ask this question: Is the multi-year bull market coming to an end. Trying to stimulate growth through easy money isn’t working.  Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy.  Many investors say that the economy is going through a healthy correction, but there’s no doubt that another financial crisis will come one day.

After the last Great Recession, Americans had little faith in big banks and hedge fund managers. Once again, the financial sector is taking advantage of people and the politicians seem to be in for the money, power, and perks, and the wealth spread between the economic stratas is increasing.  The debt number is nuts!!

2008 was a positively grim year for retirement funds: the country as a whole lost $2.4 trillion in the last two quarters of the year alone.  This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later.

By 2010 and 2011, many retirement accounts had reportedly crept back up to their 2007 levels. Yet for investors who did not keep investing at the same rate, their balances may likely have maintained a loss, rather than a gain, from pre-Recession levels. That’s because much of account growth since the crash can be chalked up to continued savings in retirement accounts.

Insurance companies that offer safe money alternatives have stood tall and remained financially strong during the economic storms.  Bear in mind that annuity carriers, unlike Wall Street and banks, have survived and prospered by judicious management and careful attention to their financial affairs.  At last fixed index-linked annuities have been vindicated.

The current rush of others toward fixed annuities is proof that these “safe money alternatives” will flourish in the uncertain economic times ahead.  A much safer approach for the risk averse and the retirement-minded is to determine how much they can afford to lose without destroying their retirement and safeguarding the remainder from loss of principal.  Even better, why not lock up a guaranteed lifetime income with your “I cannot afford to lose retirement money” by choosing a fixed annuity to deliver the peace of mind you should be seeking in retirement?

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Wednesday, April 6th, 2016 Wealth Management Comments Off on Safe Money Retirement Alternative

Safety Against Volatility in Retirement

The most obvious challenge to retiring – early or not – is having enough assets to provide the level of income you’ll need. The earlier you retire, the more assets you will need to compensate for the potentially decades-long period that you won’t be earning wages. How much risk can you afford — or do you need — to take to make sure your money will last?

Most retirees have the bulk of their money tied up in 401(k)s, IRAs and other investments. Defined contribution plans, including 401(k) plans, are the most popular retirement plans that employers sponsor in the U.S. IRAs are essentially a Wild West. Anything goes.  Advice abounds when you are putting money into a 401(k) savings plan. Yet when you prepare to retire, it’s a different story.

For decades, policymakers, employers and financial institutions have focused on encouraging employees to put money away in defined contribution plans such as 401(k) plans. But now, experts are realizing that when people retire and depend on those assets for their retirement security, they need more impartial guidance than the current system provides.

Some investors are so worried stocks will tumble that they are willing to lose money to protect themselves.  After a sharp drop at the beginning of the year, the S&P fell as much as 10.5 percent in the quarter, markets have posted broad-based gains, however everyone is still way behind from their previous highs.

What’s really amazing is that for an investor that’s looking at their statement at the end of the first quarter, they’re going to be saying: I’m flat!  The last five to 10 years before retirement can make or break your financial future, especially if you have your hard-earned money exposed to too much risk. It is called the “danger zone.”

.If history should repeat, investors are encouraged to stay the course but not load up the truck.  Investors cannot make money when money yields nothing.  Losses from negative rates result in capital losses, not capital gains

An unexpected financial crisis can wreak havoc on investments. Think about 2008, when the average U.S. worker lost about 24 percent of the balance in his or her 401(k) account. Even in better times, market volatility — always unpredictable — can seriously damage your nest egg.

It’s never too late to plan for guaranteed income needs and Fixed Indexed Annuities (FIA) allow owners to benefit from gains when markets rise but limit exposure to losses when markets fall.  For many baby boomers in retirement FIAs have their place.

A fixed-indexed annuity, or FIA for short, is an annuity that earns interest that is linked to a stock or other equity index. One of the most commonly used indices is the Standard & Poor’s 500 Composite Stock Price Index (the S&P 500).

The first and possibly most attractive provision of a fixed-indexed annuity is the no-loss provision. This means that once a premium payment has been made or interest has been credited to the account, the account value will never decrease below that amount. This provides safety against the volatility of the S&P 500.

FIAs offer consumers what could be described as the best of both worlds: a market-driven investment with potentially attractive returns, plus a guaranteed minimum return. In short: You get less upside but much less downside.  Before you invest in a fixed-indexed annuity you will want to cover the details and how this will work for you..

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Friday, April 1st, 2016 Wealth Management Comments Off on Safety Against Volatility in Retirement

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